PE-backed IPOs outperform the broader market: study

Thursday 10 April 2014

A new study released today by the Australian Private Equity & Venture Capital Association Limited (AVCAL) has found that initial public offerings (IPOs) backed by private equity (PE) funds outperform comparable non PE-backed IPOs over a variety of short and long-term time horizons.

The study examined ASX-listed IPOs with an initial offer size of A$100m or more since 2003. As at the end of February 2014, PE-backed IPOs have posted an average return of 95% since listing, compared to a 2.2% decline for non PE-backed IPOs. The analysis also found PE-backed IPOs that listed in 2013 had achieved an average return of 22.5% from listing until the end of February 2014 compared to an average 1.2% return for non PE-backed IPOs.

The study, which was prepared by leading global financial advisory firm, Rothschild, in association with AVCAL, found that an investment of $10,000 spread evenly across the sample of 21 PE-backed companies that went to IPO since 2003 would be worth approximately $19,500 as at end of February 2014. In contrast, an identical investment in non PE-backed IPOs would be worth approximately $9,780 at the same time.

AVCAL Chief Executive Yasser El-Ansary said that given the recent surge in the IPO market in Australia, the conclusions reached in this study serve to underscore the strong performance of PE-backed businesses over the last decade. “The analysis in this study puts to bed the view held by some in the marketplace that companies backed by private equity tend to underperform once listed on the capital markets – the data makes it very clear that’s simply not the case,” he said.

The study also considered weighted average returns, based on the IPO market capitalisation, and found that PE-backed IPOs since 2003 were, as at end of February 2014, outperforming non-PE backed IPOs and similar sized ASX-listed companies (as represented by the S&P/ASX Small Industrials Index).

“These results underscore the fact that private equity investment into businesses leads to a boost in the performance of those businesses, and at the same time helps to unlock growth and expansion opportunities right across the domestic and global marketplace,” said Mr El-Ansary.

Stuart Dettman, Head of Rothschild Equity Advisory in Australia, said that the analysis was relevant to both retail and institutional investors. “We’ve looked at returns both on an absolute and market capitalisation weighted basis and both showed that private equity-backed IPOs have performed well against non PE-backed IPOs. Of particular note is the strong outperformance to date of those PE-backed IPOs that listed in 2013. Given the strong IPO pipeline we’ve seen in the past six months, this research has important implications for retail and institutional investors in how they view PE-backed IPO opportunities in the future.”